Investor · Omaha, NE · Member since 2015 · 4 posts · 0 votes
I'm curious to get the pulse of my fellow real estate investors. I currently have a rental house with a balance of about 37K. My goal is to pay it off free in clear by May. My question is in your opinion, would you pay that off first or use the funds to proceed with investing in an additional property or using it as a down payment for another property.
My heart tells me to stick w/ the goal of paying it off first before buying another property.
Just want to hear your thoughts and look forward to the discussion.
In essence, you generally get a higher ROI with the more properties you buy with less money down. However, you are carrying multiple mortgages and there are certainly associated risks. Personally, I try to find solid opportunities and as many of them as I can. With today's rates, and only being 25, I would much rather spend 200k and buy 3 rentals with minimum down payments than buying one in cash -- at least for rental properties I am planning on keeping long term.
In essence, you generally get a higher ROI with the more properties you buy with less money down. However, you are carrying multiple mortgages and there are certainly associated risks. Personally, I try to find solid opportunities and as many of them as I can. With today's rates, and only being 25, I would much rather spend 200k and buy 3 rentals with minimum down payments than buying one in cash -- at least for rental properties I am planning on keeping long term.
@Eric Waters How much equity do you have in the home you're thinking about paying off? If you've already got a substantial cushion of equity, I'd put the money towards another investment.
@Eric Waters How much equity do you have in the home you're thinking about paying off? If you've already got a substantial cushion of equity, I'd put the money towards another investment.
House is currently valued at 67K.
So 30K in equity. Yes I'm on the fence which is why I'm looking to get the pulse of the real estate investor community!
@Eric Waters If I were you I think I'd put the money into another project to maximize my time and ROI since you're got plenty of risk mitigation built in to your current property ($30K in equity on a $67K home) . $37K is a great chunk of working capital to fund another deal. Just my $.02
My wife and I chose to pay off as we went and keep our numbers low. We have 5 rentals now & all but the last one are paid for. It took from 2002 until 2014 to clear all of them off the books, but, now that we owe nothing on them, the money all goes into our bank account & not to the bank.
Others are going to have their own ideas and methods & what works for them.
I believe the goal you want is more important then the method you use to get that goal. We wanted a steady stream of income for our retirement with minimal risk & minimal overhead. Having 5 paid for rental houses, all single family 3 bedroom houses in nicer areas that generate about $46K a year in gross income, works well in our plans.
Sure, we could always expand that number, but, why? Our goal was to retire with as little loss in actual income as possible. We met our goal & have no desire to go any further at this point.
I think Justin is pretty spot on. Ultimately it all comes down to how much risk you want to take on. Like Justin said you're young, so I would be more willing to take on the additional risk. When you've got a family to feed and whatnot the security of owning your rental free and clear is nice, but I'd take advantage of the leverage and grow your portfolio.
As mentioned, it depends on what YOU want. Many here on BP want to grow as big and as fast as possible. For that, you would definitely NOT pay off any properties.
If you have more modest goals, and just want to reduce your risk and headaches, paying it off might make sense. One property earning $500 is WAY better than 5 earning $100 in this respect.
Keep in mind that in an era of increasing interest rates and (possibly) inflation, having long term, low interest debt is a good thing. Why pay it off with "good" dollars now when you can pay with "cheap" dollars in the future.